By the Numbers: America’s Unfortunate Fiscal Evolution from Madisonian Constitutionalism to Wilsonian Statism

In part this is because I’m a policy wonk, but I also like budget numbers because they generally provide strong evidence for my philosophical belief in small government and spending restraint.

For instance, I enjoy sharing my table showing nations that have experienced great success with multi-year limits on spending growth, particularly since I enjoy putting my leftist friends in an uncomfortable position by asking them for a similar list of countries that have made progress by raising taxes (hint: that’s called the null set).

This new publication is filled with fiscal information starting in the late 1700s.

To give you an indication, check out this chart which, in one fell swoop, provides more than 200 years of data on spending, revenue, and debt, along with information on major wars and economic dislocations.

Since that’s an intimidating amount of information, I thought it might be a good idea to break out the most important set of numbers in that chart.

But I warn you that I’m not about to share good news. This chart shows how peacetime federal spending dramatically expanded during the 20th century.

Here’s a table from the JEC report that shows how bad attitudes, bad jurisprudence, and bad policy have led to a dramatic expansion in the burden of government spending. The most important column, which I’ve circled, shows that we used to have a very small federal government that consumed, on average, less than 3 percent of economic output. But now we have a Leviathan that diverts more than 20 percent of GDP to Washington programs.

The report isn’t just numbers. There’s also some very useful analysis.

While more spending and a bigger federal government can mean more federal jobs, these jobs come at the expense of private sector resources, meaning fewer private sector jobs and lost economic opportunities. …there is an inverse relationship between federal spending and private payroll employment.

…though spending increased in real dollar terms during this period, as a percent of the economy, spending actually declined. In FY1995, non-interest mandatory spending equaled 9.75 percent of GDP and discretionary spending equaled 7.19 percent of GDP. In spite of the spending increases, by FY2001, mandatory spending amounted to only 9.56 percent of GDP and discretionary spending amounted to only 6.16 percent of GDP.

The ideal base for a spending cap would be similar to a GDP-cap, but it would provide greater spending restraint in economic booms and greater flexibility in economic downturns. Fortunately, such a measurement, which helps to smooth the business cycle, does exist: Potential GDP. …basing a spending cap on potential GDP is very helpful for budgeting purposes, as it creates a more predictable budget path over an extended period of time.

There is a lot of additional information in the JEC report, so if you have any interest in America’s fiscal history, it’s worth your time to read the whole thing.

[…] spent that much time looking at how we got to where we are today, other than in 2015 when I cited a very interesting report from the Joint Economic Committee that provided decade-by-decade data on changes in the burden of […]

[…] the top left quadrant, we have the United States in the late 1800s, which is when we had a public sector that was significantly smaller than what Hong Kong has today. Heck, nations such as France and Sweden also had very small […]

[…] the top left quadrant, we have the United States in the late 1800s, which is when we had a public sector that was significantly smaller than what Hong Kong has today. Heck, nations such as France and Sweden also had very small […]

[…] My fantasy proposal is to have no income tax, or any broad-based tax, because we shrink the federal government to less than 5 percent of economic output (which is what existed for much of our nation’s history). […]

[…] for zero corruption. There doubtlessly was corruption in the 1700s and 1800s when Washington was just a tiny fraction of its current size. But it’s a matter of scale. A smaller government means less opportunity for […]

Doug, I know the feeling. After almost two years working on my book about the European economy, with several peers and proof readers finding errors after I thought I was done, I still found two irritating typos in the printed final product…

The argument for the virtue of spending in the Great Depression is merely “in the 1930’s government spent a lot more, and the Depression eventually ended”.

The argument for current government “stmulus” and huge spending is this: “in the 1930’s government spent a lot more, and the Great Depression eventually ended”.

We have a message from the past about the usefulness of borrowing and spending:Henry Morgenthau Jr. was Franklyn Roosevelt’s Treasury Secretary in 1939:
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We have tried spending money. We are spending more than we have ever spent before and it does not work. I say, after eight years of this administration, we have just as much unemployment as when we started, and an enormous debt to boot!
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Sven, good catch. U.S. Population growth in the decade of the 1990s was 11.9%–not 111.9%. (Population growth for the period in the paper’s other table is correct. I’m sure this isolated typo in the decades table will be corrected in the next few days.)

We have gone from a nation of appreciation and gratitude to a nation of whining, complaining and ingratitude. In other words, we have abandoned the way of the winner and embraced the way of the loser. Never have so many had so much and been less grateful.
The way of the loser is now firmly established in the legislation and budget of the federal government and those of all fifty states. Good luck with that. Until this is reversed we can expect further struggle and hardship and eventual collapse.

Thanks for the info. I just LOVE sending factual data to news organizations, as well as my network of friends. I send these articles to the news anchors who face the camera, and lie to our faces re gov’t. stats, that, gee whiz, everything’s just hunky-dory with the state of our economy, and thus, our nation.